Forced MLS membership no more? The time for ‘choice’ is now

This article was originally published on Inman News:

  • Under “MLS of Choice,” brokers and agents would only pay for the MLSs they choose to access and use. But the question is not “if they choose an MLS;” it’s “which MLS(s) they choose.”
  • MLSs engage in a value-driven service model that encourages customer focus and competition.

MLS of Choice

The committee with the longest name in real estate — NAR’s MLS Technology and Emerging Issues Advisory Board — has posted its solution for creating what some are calling “MLS of Choice.”

This solution will be put up for a vote of NAR’s Multiple Listing Issues and Policies (MLIP) Committee in November. The MLIP Committee makes MLS policy recommendations to NAR’s Executive Committee, which then chooses whether to pass them up to the NAR board of directors for final approval.

Proposed policy change synopsis: Brokers and agents need to participate, subscribe and pay dues to at least one MLS. But brokers and agents can’t be charged fees by MLSs that they don’t wish to access and use.

Changes to NAR MLS Policies 7.42 and 7.43 would allow a broker to participate in multiple MLSs, while the broker’s agents only pay dues to the MLS(s) that they wish to access.

This is accomplished by requiring MLSs to give fee waivers to agents who are already paying subscriber dues to a different MLS (where the broker also participates). The MLS can require the waiver requesting that the broker and/or agent sign a certification of non-use.

In effect, principal brokers choose which of their offices will operate and pay dues in each respective MLS service area. Brokers participate in the MLSs their agents want to access. Agents subscribe to one or more MLSs that best fits their needs.

Intended consequences:

  • MLSs engage in a value-driven service model that encourages customer focus and competition, much like the environment brokers work within.
  • Brokers are no longer prevented by artificial geographic boundaries or financial obstacles from joining additional MLS service areas and bringing on agents who work in those markets.
  • Agents are no longer prevented by artificial geographic boundaries or financial obstacles from joining brokerages with the best support model for their businesses.

Questions you may have

“Won’t some of my MLS’s agent subscribers stop paying for services? Will my headcount go down?”

Subscriber count could go either direction, but there likely won’t be much of a shift. Remember that this change allows brokers to join more MLSs without prohibitive costs. So some MLSs will likely see subscriber and participant counts go up. The vast majority of agents that want/use their local MLS’s services will continue to pay. This isn’t “if MLS,” but “which MLS(s).”

“What if agents try to cheat the system?”

What would be new about that? This was a bigger problem in the past with agents sharing listing books. Today, we have the luxury of software that can verify who’s logging in and using MLS services. Cheaters will always exist. We have to prioritize improving business conditions for great brokers and agents, and not let a minority of bad actors overshadow their needs.

“What if a broker from another area joins my MLS, and her agent wants to sell a property in my area? He doesn’t know my town well enough to be qualified.”

There are always unfit agents. Some are unfit to sell their own backyard.

The MLS doesn’t exist to keep agents and brokers “over there” from selling “over here.” It exists to foster greater cooperation. It is the job of brokers and agents to prove their superior knowledge and value to clients. As we’ve seen in countless consolidations, the fear of “agents coming over the hill” or “across the water” is overblown. It just doesn’t play out in any significant numbers.

“What if that broker joins my MLS, but her agent doesn’t subscribe? Does my cooperation/compensation still go to that agent if he writes a contract on my listing?”

Yes: Cooperation and compensation will continue to flow to the broker participant and, subsequently, to all of the participant’s agents. That won’t change. More brokers joining more MLSs will create an even broader broker cooperation network.

Certainty makes for healthier marketplaces. Sellers will know that even more brokers and agents will be confident in bringing buyers and not be held back by boundaries.

Agents will have certainty that compensation agreements are in place across MLSs. They’ll be confident to occasionally sell a home in another MLS (where their broker is a participant) that just happens to perfectly fit their clients’ needs best. This brings buyers and sellers together in situations that might not occur in a less cooperative environment.

Greater market exposure and certainty are created via the MLS. It’s a win for consumers and the industry.

A request to brokers and agents: Engage with your company’s leadership, your local association and your MLS’s board of directors. Let them know how this new flexibility of choice will improve your ability to do business and grow.

MLS leaders and directors: Let us know your concerns now. We’ve spent much of the past year discussing this issue with your colleagues, brokers and agents. We’ve surveyed membership for feedback. CMLS published a white paper summarizing the issue. It would be a shame to have this policy come to a vote in November without your questions being answered long before then.

MLS policy committee members, and NAR directors: Find out from the MLS’s primary customers — brokers — how they feel about this new potential policy. Ask us questions about the specific policy changes now, so we’re all on the same page in Chicago.

If you’ll be at the CMLS (Council of Multiple Listing Services) conference this week in Austin: Read the MLS 2020 Agenda prior to your arrival. Some of the industry’s smartest leaders are refining the direction that MLSs must take to be relevant and valuable in an industry experiencing dramatic change. Updating the MLS business model was a frequently mentioned concern.

Take it from one of MLS modernization’s master planners, David Charron:

“The moment of truth for MLS leadership must be in understanding that much of what has gotten us here will not carry us further. Much of what we created 10 to 20 years ago is worthless. Dead. So, standing down, or worse, building walls of protectionism, in the face of such enormous change does not properly depict who we are or what we aim to be.

“Successfully innovating on our base and our business model is a tricky maneuver. We have worked so hard to get here! But our primary mission is helping brokers succeed! It’s on us to band together; be that small group that enacts the change that advances our industry.”

NAR’s November vote on MLS Policy Statements 7.42 and 7.43 will be another moment that provides clarity as to whether we’re ready to embrace this kind of change. Let’s move forward.

See you in Austin.

Sam DeBord is managing broker of Seattle Homes Group, VP of Strategic Growth for Coldwell Banker Danforth, President of Seattle King County Realtors, and 2018 Vice Chair of the National Association of Realtors’ MLS Policy Committee. You can find his team at SeattleHome.com and SeattleCondo.com

The future of NAR: Action will be the measure, not words

This post was originally published on Inman News:

Key Takeaways:

  • Fat cats don’t have time to write key takeaways.

I just spent a few days in Chicago with the National Association of Realtors. During my travel, I thoroughly enjoyed Brad Inman’s description of our “fat cat (leadership) gathering.”

As I dined on velvety cream cheese airline crackers aboard the luxury Orange Line into town, I thought about how thrilling it was. I was in the company of the “thousands of NAR ghosts who love the suite life, sometimes travel first class and are experts at finding the best restaurants on their member-paid boondoggles.”

Sitting through a 90-minute working lunch on better engaging our members and supporting our volunteer leaders, I surveyed my conference chicken and steamed broccoli feast. I reflected on the free drink ticket in my jacket pocket for the evening’s festivities. I had to admit that this really was the Ritz.

Speaking of Ritz, even the snack crackers seem to be material evidence when NAR’s new CEO, Bob Goldberg, is discussed these days. Inman said Goldberg’s suite was “larger than an average apartment in New York City and was stacked with more treats than a 7-Eleven. It looked out over the Chicago River with Lake Michigan views that might give rise to grand visions, delusions or both.”


Bob Goldberg’s fat cat candy suite

I imagine that Goldberg’s suite was bejeweled in Reese’s Pieces and Diet Cokes that glittered in the lake’s reflection. If anything signaled delusions of grandeur, the snack bar was it.

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This event might not have compared to the big-ticket galas or the six-figure checks that certain portals lavish on MLSs, but the shiny cardboard cylinders filled with savory oval potato crisps were some kind of wonderful.

Disruption: What’s in a word?

Goldberg has been talking about “disrupters” frequently, and there’s been an attempt by some to paint it as a show of fear or a victim mentality. I’m not sure if these folks actually listened to his interview with Andrew Flachner or his address to the Leadership Summit.

Goldberg’s message was to embrace the disrupters, the innovators, the change agents — and bring them into a bigger tent.

I don’t know Goldberg well enough to tell you exactly how his tenure will go as NAR’s CEO. Action will be the measure, not words. But as of right now, he’s saying all the things that membership is asking for.

There’s another notion making the rounds that we should stop saying “disruptor” because “innovator” is a better philosophical choice. Although I appreciate the intent, it’s a bit like me telling my kids that crying never fixed anything, so we’re just not going to have it in our home any more.

Great leaders don’t create SWOT analyses and refuse to fill in some of the boxes. Sometimes disruption is elegant innovation that should be embraced and partnered with. Sometimes it’s just cheapness at scale or brute force taking market share.

Sometimes disruption is an unending airport serpentine of passengers waiting for a single dog to smell their bags because somebody at TSA said, “today, let’s do it differently.”

This the other part of the disruption conversation: disrupting the status quo of your people. Goldberg has tasked the NAR staff and leadership to get out in the field and serve members, to know members and to measure members’ satisfaction with the trade organization.

If you haven’t had a chance yet, watch Goldberg’s speech. Listen to the promises, and hold him to them. Hold us to them. We want nothing less.

Focusing on people

Two consecutive Ubers canceled my 6 a.m. trip back to the airport because they couldn’t find one of the biggest hotels in Chicago. I swallowed my fat cat ego and hailed an old-fashioned cab.

It gave me a minute to conjure up the kind of big shot figurehead quote that I read every morning in my Wealth Magazine at the spa: “If your people don’t understand where they’re supposed to be going, all of the technology in the world won’t get them there.”

Excuse me while I light up a Cuban and sign some royalty checks.

All kidding aside with Inman, his final conclusion is spot on and actually much like Goldberg’s philosophy.

“With no shortage of good intentions, big ideas and devoted volunteers and staff, my advice is to stop asking your members to ‘support NAR.’ The slogan should be flipped: How is NAR supporting the everyday Realtor?”

We’re starting off on the right foot. Those who’ve already written Goldberg’s chapter may be in for a bit of disruption themselves.

Sam DeBord is managing broker of Seattle Homes Group, VP of Strategic Growth for Coldwell Banker Danforth, President of Seattle King County Realtors, and 2018 Vice Chair of the National Association of Realtors’ MLS Policy Committee. You can find his team at SeattleHome.com and SeattleCondo.com

Defensible Business Strategy for Uncertain Times

This article was originally published in RE Magazine:

Defensible strategy for real estateThe speed with which our world is changing seems to be quickening. Whether technological, political, or economic, the forces that surround the way we live our lives and run our businesses are shifting swiftly.

This environment can be exciting and frightening when trying to run a stable business with a predictable income stream. As real estate professionals, we know there is no such thing as a “normal” year or a “steady” revenue model. But building in some insurance can reduce uncertainty.

What can we focus on to secure the core of our businesses when new tools and models seem to attack our value proposition from all sides?

The answer is often clouded by the frenetic activity in industry media. Bots with artificial intelligence are answering buyer inquiries. Tech startups are buying properties sight unseen with automated valuations. Investment capital is funding companies who list properties with new and unheard of commission models.

They all miss the REALTOR’s most defensible and foundational asset: personal relationships.

The answer is obvious with a bit of reflection. There is no technology that will steal away your neighbor whom you helped replace her mailbox. There’s no texting service that will have a draw stronger than your monthly happy hour connections. A personal call and conversation with a friend-of-a-friend about his son’s recent graduation will always trump an automated purchase offer from the new “I buy ugly houses” guy.

There’s a reason we have coaches, classes, and conferences to remind us of these things. If every REALTOR heard it one time and focused on growing a sphere for the rest of his/her career, we’d all be building the strongest businesses possible. We are human, though—we get distracted. That’s easier to do today than ever.

Every chance we get to remind ourselves is a good time to re-focus our efforts on building human relationships.

So here’s just another reminder if you’re feeling unsettled about the future of your business: connect.

Call, email, get toe-to-toe.  Schedule it. Without a system, it won’t work. If it’s not repeatable, it’s not a plan. If you don’t have a plan, you don’t have a business.

It’s not flashy, but there’s also very little barrier to entry. Identify your system for connecting with more real people, and put it on your calendar. Find your wheelhouse. Whether it’s networking, chit-chatting, volunteering, cold-calling, praying, or happy-houring, put the value into your sphere that they give back to you.

For the REALTOR who is concerned with what politicians, technologists, disruptors, and the economic winds of change have in store for the real estate market, this is the path to some peace of mind. You can’t control which billionaire takes a stab at your livelihood next, but you can be sure you’re building up your interpersonal defenses. That’s concrete, it’s straightforward, and it provides some certainty in an uncertain occupation.

Your defensible business advantage is your people. Support them and they’ll do the same for you.

Sam DeBord is Managing Broker for Seattle Homes Group, President of Seattle King County REALTORS, VP of Strategic Growth for Coldwell Banker Danforth, and 2018 VP-Elect of Government Affairs for Washington REALTORS. His team sells houses and condos in Seattle and Bellevue.

Seattle’s shortage of homes for sale foments disruptive bidding wars

This article was originally published on WSJ Marketwatch:

The headlines read “Seattle’s real estate market is hot!” Under that glossy surface, Seattle real estate’s inventory dearth is a growing, unruly mess.

Home prices in King County rose 12% in February, but that’s no longer an attention-grabber. They rose 18% in the same period one year before.

Inventory is at just 1.1 months. The number of available homes for sale dropped 21% in one year. These crisis-level numbers should be astonishing, but they’ve begun to seem unremarkable. After all, inventory dropped 26% in 2015, 17% in 2014 and 10% in 2013.

The shock has worn off. We’ve been inundated with double-digit noise for so long in the Seattle real estate market that we’ve almost become numb to it. While that’s understandable, it’s also problematic.

King County is issuing 200 new driver’s licenses every day to people moving in from out-of-state. That doesn’t include in-state migration and in-county natural population growth. Meanwhile, the county is only issuing building permits for 27 new housing units per day.

The diverging trend lines of people and homes get further apart by the day, month and year. Prices rise swiftly.

Residents get squeezed. They “drive to qualify”. They live further out, commute longer distances, create more traffic gridlock, spend more on transportation, have less time to spend with their families and experience a diminished quality of life.

There’s no risky financing housing bubble to blame like there was a decade ago. Employment and in-migration in King County is forecast to rise exponentially in the coming years. These are people with real jobs, verified income and real down payments. There just aren’t enough homes, so prices continue to soar.

Consumers are often surprised to hear that Realtors aren’t always excited about skyrocketing prices. We’ve gone so far as to create a media blitz and conversation starters about how we can add balance to our market at HousingTranslator.com. You’ll see a push for smart housing policy measures on the web, radio, even on the side of buses. Important discussions about creating more housing options in the greater Seattle area aren’t being had often enough and we intend to change that.

We work and live in the same neighborhoods as our clients. Our neighbors and customers feel the same strain on their housing options, commute times and lifestyles. Higher prices due to artificially constrained supply aren’t good for any of us.

As organized real estate groups push for flexibility for greater housing development, we’re often told by those who influence public policy that “We can’t just build our way out of this,” or “Supply and demand don’t apply to this issue.”

The laws of economics are not optional. The population is growing, and demand for housing must be met. Let’s look at the region’s dire housing situation as if it were a different necessary amenity for our residents.

What if the region’s garbage collection services were already maxed out by its current residents? What if, despite population growth, we gave up on building out our waste management services to support our new residents? If some of our residents don’t like the look of more garbage trucks, can we simply deny economics and ignore our population’s growth?

If we try, there’s a day when the garbage service just can’t finish picking up the growing amount of waste that the population is creating. The trucks leave the last 1% of garbage on the sidewalks. They won’t catch up the next week, either. We’ll fall another 1% behind. After just one year, garbage trucks would be leaving more trash on the sidewalks than they’d be picking up. The unmet need for services would continue to become more extreme as the population expands and services, in relative measurement, shrink.

That’s been the story of Seattle’s compounding housing woes, and we’re many years into the process. We can’t clean up today’s problems because we’re still not providing enough housing options to service the population growth from years past.

If the analogy sounds a bit hyperbolic, that’s the intent. Something has to cut through the blasé coverage of Seattle’s real estate outlook.

Bidding wars are the rule. Attorneys and software engineers can’t find homes to buy. That’s not tugging at anyone’s heartstrings.

Higher income residents eventually resign themselves to outbid someone on lower-priced homes, though. These folks force the middle class to find other options — teachers, small business owners, etc. There’s nothing left for middle-class buyers to do but drop down a price category and outbid working-class home buyers. There’s no denying the linkage. We see it every day in the business. Buyers keep bumping each other down, but there’s nothing left at the bottom.

Every new housing unit, high-priced or low, creates more breathing room in the housing ladder. It’s an undeniable domino effect. Thoughtful concern for low-income residents necessarily requires a desire to create more housing units across the entire spectrum of pricing.

The repetitive stories about rising prices in Seattle may lull some to sleep, but the strain on the region due to lack of housing development is snowballing. Affordability of homes at all income levels needs to be addressed if we want to keep our businesses happy, our residents employed and housed, and our transportation systems working efficiently. More people plus more jobs equals more housing units needed. There’s no back-door formula to change this equation.

We can build our way out of this problem. We can also do it intelligently, by preserving legacy neighborhoods and increasing density in urban centers near transit hubs. Change is inevitable. Political myopia and willful ignorance will not improve the path that the Seattle region’s housing stock is headed down.

We’ll be at least 10,000 units further behind next year. There’s no time for nonchalance in light of our repetitively gaudy housing numbers. From a long-term perspective, they’re downright scary.

Homesnap + Broker Public Portal: The Unofficial Why and How (and the case for more PR)

homesnap and broker public portalI’ve been seeing a lot of questions about the direction and makeup of the Broker Public Portal and its relationship with Homesnap. I have no direct influence or investment in either group, but plenty of interest.

Let’s clear the table first—some of these questions come from a great post/discussion earlier here on GeekEstate, others I’ve heard out in the field.

Unofficial answers about the Broker Public Portal and Homesnap (caveat emptor):

Why?
Brokers want a national search experience for consumers in which the brokers control the display rules. Partnering with their MLSs, they hope to create a clean, easy-to-use search and display that delivers leads back to the listing brokerage and is free of other commercial shenanigans. It doesn’t need to be the biggest, it just needs to return more traffic to brokers.

Does NAR run BPP?
The National Association of Realtors does not run or own the Broker Public Portal. Brokers developed the organization, and they run it in partnership with Homesnap. The MLS partners, in some cases, are owned by local Realtor associations, but NAR isn’t directly involved in BPP directly.

Who pays for Broker Public Portal?
MLSs who sign up with BPP pay $1 per member per month.

Why would agents want their dues dollars to pay for another portal?
The agent benefit is getting access to Homesnap Pro tools. By joining BPP, the MLS’s members get one of the best MLS apps available. Its integration of agent-only information, mapping, rapid CMAs, and direct client interaction will make most agents who see it open up their pocketbooks happily—for a buck.

As for dues: if your MLS passes the cost on to the agent, these would be MLS dues dollars (not NAR). Depending on your MLS, those dues may go to your association, a separate for-profit company, or a broker-owned conglomerate. So the BPP portal is the primary broker benefit, and Homesnap Pro is the primary agent benefit.

Is BPP a “for profit” initiative?
*Update: Via Victor Lund, it is a “for profit” corporation, but all profits are rolled back into the corporation.* I think the more appropriate label is a “for profitability” initiative. The BPP members and Homesnap could directly profit from 1.5 million $1 monthly fees from the entire nation of Realtors. But snaring a greater percentage of internet traffic and leads on a cost-controlled platform is the real goal for brokers. This is about greater leverage in online real estate. Commissions dwarf subscriptions. Brokers, and agents, want more closings with lower acquisition costs.

What if Homesnap wants to break away after BPP becomes popular?
We’re told that the operating agreement has fail-safes, or a pre-nuptial, built in. It’s a private venture. Everyone on this board knows about the NAR/realtor.com/Move deal 20 years ago–they don’t need another reminder.

Why would a consumer use BPP/Homesnap (vs Zillow et al)?
Consumer-driven traffic is just one part of the equation. Agent-driven traffic is a very different animal with a much higher correlation to closings. Don’t ignore the potential of MLS-wide adoption of an agent-to-consumer mobile search tool.

In 2012 I thought Realtor.com might nail this strategy with its app, but the adoption just didn’t take. It made even more sense to me in 2014 when Homesnap came on the scene. (Maybe that just means I’m repetitively wrong.)

Won’t this, effectively, be a “consumer facing MLS website” on a national scale?
If it gets national adoption, it would be in a way. Importantly, though, brokers initiated this project, not the MLS itself. The likelihood of all 700+ MLSs signing on anytime soon is low. But let’s be honest, there are already a handful of consumer facing MLS websites on a national scale. They’re just run by “media companies.” Almost all MLSs, brands, franchisors, and brokerages are feeding them MLS listings somehow.

If my MLS joins, does this mean my MLS will be competing with my local website for traffic?
There’s some nuance in this answer. A local MLS with a public facing website creates a clear competitor to a broker in local search. A national portal also competes, but on a bit of a different playing field. Brokers/agents with quality websites can still compete for local traffic because of their unique local status.

Truth be told, though, everyone’s competing with everyone. Once in a while a large portion of the brokerage sphere is in agreement, and it’s worthwhile to seize that momentum if that’s the “big picture” side you’re on.

So how does Broker Public Portal + Homesnap succeed?
Gradually: MLSs join, brokers push adoption of the tools for their utility and cost savings, and agents start using the app as their primary interaction with their MLSs. In turn, they share listings and the search experience with their clients. 1.5 million real estate professionals become the boots on the ground “selling” the product to actual real estate consumers.

Ideally, more consumers stay inside this sphere. Agents and brokers take home the same commission splits, with lower acquisition costs because advertising fees are lower/cut out.

Think of it this way: Homesnap getting into an MLS is like a software company becoming the only music app provider in Apple’s app store. Other companies can buy all of the Android and Microsoft user traffic they’d like, but everyone on Homesnap’s platform is protected in the walled MLS garden.

What’s next?
There’s no guarantee that any of this comes to fruition. But this is a very pragmatic approach at leveraging brokers’ greatest strengths—the MLS and their agents—and focusing them on building media exposure that they couldn’t otherwise achieve by simply trying to buy it.

Brokers don’t have to build their own mobile search–Homesnap has already done it. There’s already a significant base of traffic using their systems, so there’s no starting from scratch.

Finally, a respectful suggestion: The folks at Homesnap have always done a great job of getting media exposure as a lean startup. Now it’s time for brokers to give the joint venture some more financial horsepower to proactively answer these kinds of questions on a broader scale.

In the absence of immediate answers, wild conspiracies spring up. I can’t overstate how difficult PR and industry relations are in real estate for a new initiative. Just ask the folks at Upstream. Let’s get the story straight for our industry, and then let the chips fall where they may.

Comments? Fire away.

Sam DeBord is a former management consultant and web developer who writes for for Inman News and REALTOR® Magazine. He is Managing Broker for Seattle Homes Group with Coldwell Banker Danforth, and 2016 President-Elect of Seattle King County REALTORS®. His team sells Seattle homes, condos, and Bellevue homes.

Is Opendoor the payday loan of real estate?

This article was originally published on Inman News:

  • According to research, median Opendoor homesellers give up 14 percent of their homes’ value through equity and fees.
  • The results for homeowners are like a payday loan: Some scenarios could push seller loss percentages into the 20s.
 Opendoor is a venture-capital-financed property flipper with a $1 billion valuation.

Inman had a fantastic piece last week by Mike DelPrete analyzing Opendoor’s progress in its first two years. Read it.

Quick observations based on Mike’s piece:

  • Opendoor buys and resells homes. Sometimes it fixes them up a bit, but its average relisting time is just 20 days.
  • More than half the time, the gap between the price Opendoor pays sellers and its resale price on the flip is 5.4 percent or greater.
  • On about 1 out of 5 resales, Opendoor pockets price gains of 10 percent or higher.
  • Consumers are also charged 6 to 12 percent in fees, averaging between 8 and 9 percent.

To Opendoor’s credit: There is a need in some specialized cases to turn real estate into a liquid asset in short order.

Even if the assets are heavily discounted in the process, there’s a niche audience that requires this service. Opendoor’s founders are brilliant in creating and selling this marketplace, and the company’s growth is evidence of that.

There’s good cause for some buzz, but the fawning over Opendoor’s value to the consumer seems off-key.

Forget the buyback options, warranties and unmanned lockboxes — these flashy headline-grabbers distract from the meat of the story. The shine on this unicorn is blinding some to the casualties of its financial mechanics.

Friction and leverage

Much of the excitement around Opendoor is in its removal of “friction” from a home sale.

Friction can mean the preparation, negotiation, financing and other logistical checkboxes necessary to maximize returns in a traditional sale.

Friction also includes financial transaction costs, though. The company’s median sellers appear to currently spend around 14 percent of their homes’ value between fees and equity to work with Opendoor. A significant number lose 20 percent or more in equity alone.

Of course we can look at the possibility that improvements to the property contributed to price gains. But Opendoor’s average home only sits 20 days between closing and relisting. That’s enough time for a quick shine in most cases.

We also don’t know if a full-time, local specialist agent could market and negotiate the home to an even higher price than Opendoor. Its average sale is giving a 5 percent discount off the list price to the buyer. The company’s carrying costs on vacant homes (financing 90 percent of purchases) incentivize it to be flexible in negotiations to expedite turnover.

Some have touted the model creating “leverage” for sellers, who are viewed as an underserved market.

Although it’s true that there are few other avenues for sellers to offload a home this quickly, the simultaneous decimation of equity wipes out the benefit to the vast majority of sellers. For most homeowners, it’s more of an outlet to swift surrender than a gain in leverage.

Location, location, location

Opendoor is successful so far in Phoenix, where there are no transfer taxes.

What happens when it moves into cities and states where transfer taxes can absorb up to 2 percent of the value on each sale? The seller may pay one tax directly, but the tax on the second sale probably has to be built into the pricing model, as well.

Someone eats those costs. The percentage of the home’s value being absorbed or spent in fees, taxes and equity could start reaching into those magical mid-20s for some.

There’s a sector of consumer finance that squeezes these kinds of short-term gains out of consumers. It’s not a media darling like Opendoor. Its existence is the reason for an entire category of usury laws.

Blissful ignorance?

These sales look more like payday loans than consumer innovation.

There should be no joy in watching home owners squandering so much money, so quickly. Their equity, in the homes that we’ve assured them are the best investments of their lives, is plucked away in a swift and slick transaction.

It’s clear from the numbers that most of them would greatly benefit from hiring an agent and waiting it out — if they had those numbers.

Buying and selling a home is all about informational leverage, though. Opendoor’s pricing model is, apparently, highly advanced, and the company deserves credit for its technical prowess.

The most profitable course for Opendoor would probably be targeting homes where its lowball offer price is similar to an identified, public online valuation. You can imagine the conversation: “It’s close to the Zestimate. It’s easier. Why not?”

Set an extra $15,000 to $20,000 cash in front of the same Opendoor seller in Phoenix and ask, “Can you wait a little while for an agent to get you this much more from a buyer? It’s what you, and your retirement account, deserve.”

Who are we rooting for?

When consumers have access to quick money schemes, some willfully ignore the big picture ramifications.

Payday loans are popular for a reason, and it’s not because using them is a sensible long-term decision. We may not be in the business of regulating consumers away from their own poor decisions, but cheering them seems distasteful.

I’m impressed with Opendoor’s strategy and growth. If the company’s crafted storyline continues to be more visible to consumers than the actual financial results, it could continue to make a lot of money for its investors.

Sometimes new business models just find a better way to extract more money from consumers without creating significant new value for them.

That’s fair, but let’s not canonize Opendoor just because it’s using technology to increase its margins. The new “I buy ugly houses” guy is just better-financed, with a slicker pitch — and a higher fee.

Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth and President-Elect of Seattle King County Realtors. You can find his team at SeattleHomes.com and BellevueHomes.com.

Human satisfaction: Can a bot fake it?

This article was originally published on Inman News:

Excitement about new technology in real estate is usually followed by long delays in practical application. Logistical, territorial and legal hurdles often stand in the way.

Bots seem to be overcoming those barriers with ease.

How do bots work in real estate?

Bots in real estate create artificially enhanced relationship management. From conversation to conversion, nurture and management, software systems are being built to interact with end users as if there was a relationship with a human on the other end.

Sometimes these systems tell the consumer interacting with them that they’re a bot. Sometimes they don’t.

In some cases, they’re a little bit of HAL 9000, assisted by a little bit of Dave the human.

The gray area creates an interesting question: how much “faking it” is ethical — and how much does the end user care?

No doubt you’ve seen “the scene” from When Harry Met Sally. (Millennials, go YouTube it — maybe not at work.)

The conversation centers on whether participants in a transaction can really tell whether or not their counterpart received the desired experience.

Actor A may feel like he has achieved a win-win outcome, while Actor B may just be humoring his obliviousness. Not unlike a parent letting a child beat them in a game to deliver pleasure through illusion, “faking it” is sometimes the most pragmatic decision.

When Riley met Jenny

When the transaction is business-to-consumer, faking it may often be preferable. If a bot can provide a human-like experience with a fulfilling outcome for the consumer, isn’t everyone better off?

Meet Riley. He is a combination of bot and human, but he doesn’t like to talk about it.

Consumers, by and large, don’t know he’s “human-assisted AI.” An inquiry to Riley about a property may begin with some standardized questions and replies. Quickly, though, it transitions into an actual human experience.

Riley’s job is to answer questions and keep the consumer in conversation with value and time that the agent or business-person may not have at the moment.

I conversed with Riley a few times, looking for the moment where the contextual intelligence of a real person took over.

It’s a smooth transition. Most consumers probably aren’t skeptics, looking for the seams in the process.

Even if they knew, though — would they care? Probably not, if the outcome they desired had been delivered.

Call 867-5309 for a good showing

Jenny has a different point of view. She’s built on IBM’s Watson technology, 100 percent bot, and proud of it.

Not afraid to answer 20 texts or Facebook messages at 3 a.m., she wears her digital brain on her sleeve and tells consumers who she is upfront.

It’s a good bet that consumers will be more willing to barrage a bot than a human with extensive and repetitive inquiries.

Jenny’s job is to quickly dispense of the most mundane listing maintenance duties: answering sign calls about property details, showings, flyers, open houses and so on.

Her primary goal is to make the listing management system efficient. Call her Lucy, Clippy or TI-85 — it doesn’t make a difference. Consumers know she’s a bot.

Will Jenny’s upfront AI admission limit other opportunities?

She could transition to lead conversion mode mid-conversation. Already knowing that they’re talking to a bot, though, consumers would probably be less likely to answer a long string of questions about themselves.

Then there’s that nagging truth about real estate: Human loyalty generates long-term clients and referrals. Consumers who feel that their agent has personally provided his or her time to them will often feel obligated to work with, and refer other clients to, that agent.

The giving of human time — real or perceived — generates loyalty. Can a self-identified bot deliver the same feeling?

Team in a box

A team of bots seems like the ideal setup for efficiency.

Riley is mum about his AI to improve the consumer’s experience in the initial conversation. He is the lead conversion bot.

Jenny is the card-carrying bot office manager, delivering answers efficiently with a machine learning badge.

Sally is the incognito sphere nurturer who leans heavily on the real agent for support.

The level to which they support one another or reveal themselves as inhuman will depend on the ethics, perception and aggressiveness of their employers.

Of course, technically, these bots don’t have to be disconnected entities. They’ll likely be built as a single software program with different personalities for different duties.

Call it a team in a box. Defining the personalities is the key to optimizing the user’s perception.

The technology is already capable, but the personal nuances will determine consumers’ acceptance of the experience.

“You don’t think that I can tell the difference? Get outta here.”

Harry didn’t know until he was told. Will consumers know — or care?

A quick note:

CRMLS has begun passing on listing licensing fees from third-party portals to its member brokers. Bravo! The dollar amount is minuscule today, but the decision is still significant.

CRMLS can’t disclose which portals are paying for direct feeds, and how much they’re each paying, due to contractual obligations. This isn’t a surprise. I’ve been asking around the industry for years and getting jazz hands as a response.

The spotlight is beginning to shine through the smoke and mirrors of listing syndication finance. How much will portals pay for a listing? How much is that listing worth in ad revenue? How many MLSs are being paid by portals, and how many are willing to pass that revenue on to the brokers?

Why not create a model where the portal pays a referral fee to the broker/MLS based on a percentage of advertising revenue generated? Brokers know they’re not leveraging their listings’ advertising value. Creative options for greater revenue capture will continue to grow as broker margins shrink.

More exposure of these kinds of financial agreements is good for real estate. Pricing is arbitrary when sellers don’t know the market value of their product. Let’s continue to air out the details.

Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth and President-Elect of Seattle King County Realtors. You can find his team at SeattleHomes.com and BellevueHomes.com.

Residential building can’t keep pace with Seattle’s surging job market

This article was originally published on WSJ Marketwatch:

Surveying the dozens of towering cranes growing into Seattle’s skyline, one might wonder if there’s a housing boom that will eventually crash as it did in the last Seattle real estate downturn. It’s a reasonable reaction for an untrained observer, but it’s also a dangerous one for the region’s ability to plan for accommodating smart growth.

Seattle was recently cited as the top U.S. city for construction cranes, with twice as many in action as New York or San Francisco. Viscerally, it feels like a building boom that could outstrip demand.

The problem is that, by and large, the city isn’t building housing. Of the 16 new high-rise towers being built in Seattle, just two of them are condominiums. Between Seattle’s three new condo buildings, the city is adding about 1,000 housing units. New apartment buildings are only bringing online around 2,000 new units in the short term. Meanwhile, King County issued 71,000 new driver’s licenses to people from out of state in 2015. Most of these people will work in the metropolitan core. The numbers aren’t adding up.

Seattle’s rate of housing construction continues to fall behind the region’s population growth. The demand for housing comes from a changing local environment. An ever-increasing population of technology, health-care, science and other workers are relocating to the area for its booming employment market.

In the current environment, with robust job growth and a nationwide spotlight, Seattle is experiencing rapid price appreciation. Double-digit gains have become the norm, squeezing the ability of the average resident to live in the core. This creates great stress on the transportation system as residents move further out and commute back in to the city.

Seattle’s growth isn’t a new story, but defining its size and impact is often difficult. Companies are often tight-lipped about hiring numbers. Based on multiple reports, though, just four local companies are planning on hiring an additional 10,000 employees in the coming year. There’s phenomenal job growth throughout the region across dozens of large organizations, but by simply focusing on Amazon AMZN, +0.49%  , Google, GOOG, +0.60% Facebook FB, +0.78%  , and Microsoft MSFT, +0.51%   the region needs to build an additional 10,000 housing units within a reasonable commute distance to keep our housing situation from becoming more constricted.

What about that forest of cranes? It seems that most of Seattle’s construction is focused on offices for the workday employees as opposed to homes to house them within close proximity. Amazon is nothing less than a phenomenon. It occupies 10 million square feet of commercial space in Seattle, and it seems to announce plans to build a new tower every other month. The company is hiring as quickly as it is building offices.

Many of these new residents will want to buy homes. While the growing city requires greater density of housing, condo construction lags far behind population growth. There are a scarce few condo construction projects coming to market, and few in the planning phase. Between Insignia, Gridiron, and Luma projects opening between 2015 and 2017, less than 1,000 new condos will be available to purchase.

Developers blame the lack of condo construction on onerous regulations that put tremendous liability on the builders of condos. The costs of construction, and the virtual guarantee of being sued in the current environment, render most Seattle real estate projects unworthy of condo development.

Smart growth requires the region to encourage density in the locations where employment exists. Local officials need to embrace the links between housing supply, development costs and the ability to provide affordable housing and reliable transportation for citizens at all income levels. The price of housing has always affected the ability of the entire spectrum of residents to live in a healthy environment and have a reasonable work commute.

Seattle needs more housing. It needs higher-end housing that’s in demand by our new residents to slow the rapid price increases due to constricted supply. It needs moderately priced housing to keep its long-time citizens within reasonable distances from their employment and ease transportation issues. It needs affordable housing to keep our residents who are being stretched to their limits in safe environments where they can continue to work and grow without the fear of losing everything.

It’s time for Seattle to talk seriously about what will ultimately decide our fate — supply and demand. There is no band-aid or legislative work-around that negates the laws of economics.

The conversation starts with supply. Everything else is a game of musical chairs.

Seattle home-sale market provides small hint of slowdown

This article was originally published on WSJ Marketwatch:

Home buyers in Seattle might be able to breathe a bit easier. The Seattle real estate market is still red hot, but the rate at which its inventory is shrinking has been slowing.

The number of homes available for sale in the greater Seattle area has shrunk about 13% year over year. That news on its own sounds like bad news for buyers. Compared with the 20% drops that we’ve seen over the past 18 months, though, it looks like a positive trend. Sellers may finally be getting on board and listing more homes for sale.

Available inventory in the Seattle real estate market has been under two months for over two years. That’s not a healthy market, and it has pushed double-digit price increases across the region. A balanced market would have 4-6 months of available homes. Sellers are concerned that after they sell, they’ll have trouble finding their next home in this competitive market. It becomes a self-reinforcing cycle. The summer slowdown we’re seeing right now may finally be reversing that trend a bit.

That’s the feeling on the streets from many real estate brokers. From the MLS board to the Realtor association and brokers’ offices, the general murmur is that while the market is still very hot, we can feel a bit of a slowdown in the air. Some buyers are giving up. Some aren’t willing to waive all of their contingencies any longer. Cash buyers still win, and big offers still prevail, but buyers are negotiating a bit harder and sellers are playing along.

King County, at the heart of the Puget Sound real estate market, could use that relief. The median Seattle home price rose 15% over the past 12 months. At $505,000, that pricing is out of reach of many middle-income residents. Still, the influx of technology jobs and the lack of new construction create a demand for homes in the upper pricing tiers of the market.

ondos are scarce. King County has 0.9 months of available condo inventory for sale. Seattle condos are like a black hole. The inventory just keeps imploding upon itself.

With this kind of price appreciation comes bubble talk. The price increases are dramatic. There will be a slowdown at some point, but our situation is vastly different than it was before the 2007 peak. There are 10,000 new technology workers coming to the Seattle metro this year from just four companies. They’re making good money. The mortgage system now verifies income, employment, assets and ability to pay.

In short, the last bubble was built on false credit. Home buyers today have cash, large down payments and good jobs. Seattle’s population shift is a major factor in a long-term reshaping of the city’s real estate market.

A bit of a slowdown would be welcome in the Seattle real estate market. Just don’t expect prices to go down any time soon. The fundamentals for today’s buying frenzy are solid. Seattle has become a more valuable place to live.

Seattle condo prices jump 21% as tech workers snap up urban homes

This article was originally published on WSJ’s MarketWatch:
by Sam DeBord

Inventory is the story across the country. Lack of available homes is constraining most major markets, and the Seattle real estate market feels the pinch. Monthly home sales have eclipsed new listings in recent months.

The condo market in Seattle is a prime example of how low inventory can affect home prices and affordability. The city has seen a huge influx of technology workers in recent years. Amazon, Microsoft, Google, and Facebook are just a few of the companies relocating employees to the Seattle market.

– Search Seattle homes for sale – 

Many of the folks in the tech industry work long hours and prefer an in-city lifestyle. They eschew the long commutes and big yards, and prefer walkable neighborhoods and the low-maintenance benefits of condo living.

Unfortunately, there aren’t enough condos to keep up and the problem keeps getting more serious. Inventory of condos available for sale in Seattle dropped to 0.97 months in February. That means for every 100 condos being sold, only 97 were being listed for sale.

When markets go above 100% absorption, buyers feel the crunch. Balanced markets are supposed to have 4 or 5 months of inventory for buyers to peruse. The Seattle real estate market hasn’t seen those levels in terms of available condos since early 2012.

Year over year, Seattle’s condo inventory is down 39%. For buyers, that means bidding wars and rising prices. The median condo price in Seattle rose to $385,000 last month. That’s 21% higher than just one year ago. It’s not a surprise anymore to hear about a brand new listing that received 10, 20, even 30 offers. Buyers get fed up, but rent prices continue to rise at the same time.

The trend Is growing

The measure of condo pricing over time can be volatile because of the significant difference in building styles and how they fluctuate based on new buildings coming available. The overall trend can’t be denied, though. Seattle’s population is growing, the demand for urban homes is visible and the region’s newest residents want to buy homes near their jobs.

Condo development is at the heart of the answer for cities like Seattle where population growth is meeting with a lack of housing and transportation. Regulation and resistance from traditionalists create significant hurdles and friction for condo developers. Onerous construction fees and lagging liability concerns discourage new entrants.

That shouldn’t stop local leaders from confronting the inventory issues head on — because they’re beginning to tower over us. Growth is inevitable. Embracing the change will make the region stronger in the future. Obstructing condo development will only make us feel like we’re preserving the gritty little town that we used to be. That time has passed.

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